The ‘National Bank’ Expresses Concern Over Household Debt, Suggests Sustainable Solutions
In a recent discussion at the Bank of Thailand (BOT), Miss Suwannee Jesadasak, assistant governor of the Financial Institutions Supervision Group, shed light on the issue of household debt and the progress being made towards finding sustainable solutions. The BOT is actively monitoring household debts and working closely with creditors to implement long-term relief measures every month, ensuring that debtors receive the necessary support for recovery.
Gradual Decrease in Household Debt Ratio
The data reveals that the ratio of household debt to GDP in the first quarter of 2023 has gradually decreased from the peak acceleration experienced during the COVID-19 period. While it stood at 16 trillion baht, equivalent to 90.6% of GDP, in the fourth quarter of 2022, it has now increased to 91.4%. This adjustment in data encompasses borrowers who are already in debt, rather than accounting for new debts, such as those from the Student Loan Fund, cooperatives, and housing.
However, it is important to note that not all forms of home debt fall under the BOT’s supervision. About 73% of such debt, including credit card loans, home loans, personal loans, and car loans, are under the BOT’s supervision, while the remaining 27% is not, particularly loans related to cars, cooperatives, and education (Kor Yor Sor.) loans.
When analyzing loan types, home loans make up 34%, car loans make up 11%, credit card loans and personal loans account for 27%, and career loans, education loans (Kor Sor.), and others make up the rest. While not all household debt is a concern, it is the vulnerable groups who find it difficult to repay their debts that raise significant worry.
Addressing Urgent Debt Challenges
In terms of resolving debts that require immediate attention, Miss Suwannee highlighted four aspects: existing bad debts, debts that are becoming chronic but have not yet become bad debts, new debts that are rapidly increasing and have the potential to turn into bad or chronic debts, and informal debts. Furthermore, she emphasized that non-career debts, such as consumer loans and personal loans, are particularly concerning.
Three Approaches to Achieve Sustainable Debt Solutions
Miss Suwannee outlined the following strategies that the BOT will undertake:
Lending Criteria:
- 1. Responsible Lending (RL): This approach requires creditors to provide credit responsibly and fairly throughout the debt cycle, from the initial borrowing stage to troubled debts or debt sales. Debtors must receive appropriate support promptly, ensuring adequate quality assistance. The BOT will also provide guidelines for addressing chronic debts to facilitate debt closure.
Risk-Based Pricing Mechanism:
- 2. Risk-Based Pricing (RBP): This mechanism aims to promote fair credit access by offering debtors risk-based interest rates. Low-risk debtors will have access to lower interest rates, whereas high-risk debtors can still obtain credit within the system.
Macro-Prudential Policy Measures:
- 3. Macro-prudential Policy Measures (MAPP): These measures enable creditors to determine the debt capacity of borrowers and ensure that they have sufficient income for their living expenses, preventing over-indebtedness. For instance, debt management is crucial to ensure that the debt-to-income ratio remains reasonable (DSR).
The BOT will initially enforce the Responsible Lending (RL) and chronic debt resolution criteria, followed by the risk-based pricing mechanism (RBP). The adoption of Macroprudential Policy measures (MAPP) will be considered based on the economic context. The BOT will provide further details at the end of July and will hold a public hearing soon.
Avoiding a NPL Cliff
Miss Suwannee acknowledged that the non-performing loans (NPL) outlook may gradually increase in the future, particularly among vulnerable groups with low or unrecovered incomes. However, she assured that it will not lead to an NPL cliff, as financial institutions have the capability to control the situation. Currently, Thailand’s banking sector ratings remain stable, and the country’s economic recovery is ongoing, improving the ability of vulnerable debtors to repay their debts. The most affected are low-income individuals burdened with high debt and those who have irregular incomes but have received assistance yet are unable to repay their debts.
“The BOT encourages creditors and debtors to expedite debt restructuring negotiations. Additionally, debtors with credit card and unsecured personal loan debts overdue for more than 120 days can seek assistance from the Debt Clinic to restructure their debts, ensuring manageable monthly repayment burdens,” stated Miss Suwannee.
In addressing the issue of household debt, the BOT aims to implement sustainable solutions in collaboration with all sectors. Comprehensive guidelines will cover the entire debt cycle, including responsible creation of new debts, management of existing debts (particularly bad debts and chronic debts), and facilitating access to credit within the system.
The ‘National Bank’ is worried about household debt after growing 91.6% per GDP, suggesting 3 criteria for solving sustainable debt.
On July 3, at the Bank of Thailand (BOT). Miss Suwannee Jesadasak assistant governor The Financial Institutions Supervision Group, Bank of Thailand, discussed the household debt situation and progress on sustainable solutions to household debt problems. The BOT closely monitors household debts and continuously pushes forward the implementation of long-term debt relief measures with creditors every month. so that creditors can still help the debtor recover
The data on the ratio of household debt to GDP in the first quarter of 2023 gradually decreased from the high acceleration during the COVID period, which was 16 trillion baht, representing 90.6% of GDP, but increased from household debt in the fourth quarter / 2022 is 91.4% Because the BOT has adjusted the new set of data to cover more borrowers who are already in debt Not new debt, such as Student Loan Fund (Kor Sor.) debt, cooperative debt, housing debt
However, if separated by home debt supervision, not all are under the supervision of the BOT, a portion of 73% is under the supervision of the BOT, for example, all credit card loans 90% of home loans 2 in 3 of personal loans and car loans , and 27% are not under the supervision of the Bank of Thailand, especially car loans, cooperatives, and education loans (Kor Yor Sor.)
Suwannee Jesadasak Assistant Governor Financial Institutions Supervision Division, Bank of Thailand.
When classified by loan type, it includes home loans 34%, car loans 11%, credit card loans and personal loans 27%, career loans. Education Loan Fund (Kor Sor.) and others Not all household debt is a concern. if used in what is necessary for a career The worrying part is the vulnerable groups who are unable to pay their debts.
“For debts that need to be resolved urgently, there are 4 aspects: 1. Existing bad debt 2. Debt that is a chronic problem Not yet in bad debt but unable to finish closing 3. New debt that increases rapidly and may become bad or chronic debt in the future 4. informal debt At the same time, the debt that is really worrying is the debt that is not caused by necessity. Or is it non-career debt, like a type of consumer loan? personal loan which is the one that worries me the most,” said Ms Suwannee.
3 ways to solve sustainable debt
Ms Suwannee said Guidance after this the BOT will do the following: Lending Criteria 1.Responsibal (RL) which requires creditors to provide credit responsibly and fairly throughout the debt cycle. since before debt during debt Troubled debt to debt sales Debtors must receive appropriate, timely, quality and adequate support, with guidelines for chronic debtor care. to see the way to close the debt
2. A risk-based pricing mechanism (RBP) to promote credit access in the system and help debtors pay risk-based interest rates and receive fair treatment. The key principle is low risk debtors. it should receive a lower interest rate and increase access to credit in the system for high risk debtors
3. Macro-prudential policy measures (MAPP) allows creditors to give credit according to their ability to repay a debt and the debtor has enough money to live on. It does not lead to over-indebtedness, for example, managing debt not to be too high compared to monthly income (DSR)
However, for the scheme implemented in terms of Responsible Lending (RL) and chronic debt resolution criteria, it will be enforced first. is followed by a risk-based pricing mechanism (RBP) and for Macroprudential Policy measures (MAPP), its adoption must be considered in accordance with the economic context The BOT will explain the details further at the end of July. The BOT will open a public hearing shortly.
not yet born ‘NPL Cliffs’
Ms Suwannee said In the future, accept that The outlook for non-performing loans (NPL) may gradually increase. by vulnerable groups with low incomes or incomes that have not yet recovered But it will not see the NPL cliff (NPL Cliff) and it is a level that financial institutions can control. Currently, rating agencies for Thailand’s banking sector are still stable. Thailand’s economic recovery continues. leading to a better ability to repay debt from vulnerable debt groups that can deteriorate Most of them are in low income groups. have a high debt load and groups without regular income who have received help but still can’t come back to pay the debt
“BOT has encouraged creditors and debtors to speed up debt restructuring negotiations. In addition, credit card and unsecured personal loan debtors who have bad debts more than 120 days past due can join the Debt Clinic. Restructure the debt so that the monthly burden is at a level that can be repaid,” said Ms Suwannee.
In this regard, the BOT will accelerate the issue of sustainable solutions to household debt problems. It must be done in a fully integrated, correct and co-operative manner with all sectors. Such guidelines will cover the entire debt cycle, from the creation of new quality debt. Taking care of existing debts, especially bad debts (NPLs) and chronic debts. including helping people access credit in the system
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